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A local council has enquired whether it can deduct VAT on improvement works carried out at wastewater treatment plants. The Directorate-General for Taxes (DGT) has ruled that if the sanitation service is provided without consideration or via taxes (of a fiscal nature) and is separate from the water supply, the operation is not subject to VAT and, therefore, no right to deduction exists.
This ruling clarifies that local authorities cannot reclaim VAT on infrastructure works if the underlying sanitation service is exempt from or outside the scope of VAT due to its tax-based nature.
The tax team reviews your specific situation.
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